Restrictive covenants have long been a source of contention in Employment Law. These contractual clauses, which impose restrictions on employees’ actions after leaving a job, are a tool used to protect business interests when an employee moves on. However, unlike some other countries, the UK does not have specific legislation that governs restrictive covenants in employment contracts.
This doesn’t necessarily mean that employers can put anything in a contract. Case law and common law has determined some guidelines for the use of these covenants however it has raised questions about how the law addresses uncertainty and potential abuse surrounding such agreements.
The Government has recently announced plans to introduce some legislation in particular regarding non-compete clauses and how they should be effectively used.
Before reviewing the proposed changes, it’s worthwhile mentioning the common restrictive covenants used currently and why you may choose to include them in an employee’s contract of employment:
- Non-Compete
- This is used to restrict Employees to working for competitors or starting a competing business after leaving their Employer
- Non-Solicitation
- This protects the business by preventing former Employees from actively taking work/contracts/clients away from the business
- Non-Dealing
- Protects the business by restricting former Employees from contacting previous contacts/clients that were gained whilst working for the Company
- Non-Poaching
- Protects the business by restricting a former Employee from enticing or poaching current Employees to their new Employer or for their own business if they have started their own business
- Inventions and Intellectual Property
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- This protects the business by clarifying that they do not have the right to use or take with them any patent, trademark, design, copyright or business name that they have developed or been involved with whilst working for the company.
- Confidentiality Clause
- This clause requires Employees to keep company information and trade secrets confidential even after their employment ends.
So what can we currently do?
Currently, Common Law and Case Law suggests that these covenants should last for no longer than 6 -12 months after the last day of employment. Common Law also dictates that we should only include these clauses and be able to justify the length of time that they will apply for the purposes of protecting the company’s interest.
Practically speaking, Employers should review contracts on a case by case basis and determine which (if any) of these covenants are essential for that person’s role in the business. For example, it would be easier to justify including these covenants for sales roles and those of Directors and Managers rather than employees who are not client facing or have access to customer data.
Proposed Changes
Although still not set in stone, the planned change by Government would only affect the Non-Compete clauses. Their suggestion is to put a restriction on the length of time that these can be enforced for with the suggestion being to reduce the length from 6-12 months to a maximum of 3 months. The rationale for this is that it is unreasonable to prevent an Employee from potentially gaining employment for longer than this; which if anything the current economic climate supports.
This change provides clear legislation on what is acceptable to include in contracts and it may be the catalyst for the government reviewing the full suite of restrictive covenants, so we may find more legislation is proposed that covers the other restrictive covenants further down the line.
For more information regarding the use of Restrictive Covenants and how they can be implemented, please get in touch with our HR Support Team if you would like further advice in this area. Call our team on 01302 341 344.
By Kris Kerins BSc (Hons) Assoc CIPD – HR Operations Manager & HR Consultant –